The View | What drives innovation?
Government has a role to play in developing infrastructure and rules to facilitate innovation activities but skilled and talented people are the most important element of success
Should governments intervene in the capitalist free market to promote economic activities?
Economists have debated this issue at considerable length on two occasions. The first time concerned industrial policy and the most efficient way of allocating scarce resources.
This debate focused on whether governments should pick winners or leave the task to the market. The market system and the price mechanism were seen by most economists to be the most efficient at allocating resources. Public intervention was only considered justified when markets failed.
These views notwithstanding, governments still adopted protectionist policies, supposedly to help nurture nascent national industries that ultimately failed themselves. In reality, they resulted in rent-seeking and reduced competition, and to a politicisation of the process to decide which industries to protect.
Hong Kong’s positive non-interventionism has been both an argument that the free market could pick winners better than the government and a strategy to insulate government decisions from rent-seeking lobbies.
The second debate concerns technology and innovation and sees wealth production as the result of transforming new ideas into new products that could be profitably supplied. Is government policy or the market the best approach for nurturing ideas to foster growth and productivity?